1(a)
Notes payable
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
To Prepare: the
1(a)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
October 1 | Cash | 41,000,000 | |
Notes Payable | 41,000,000 | ||
(To record the issuance of notes payable) |
(Table 1)
Explanation of Solution
- Cash is an asset and it has increased the value of the asset, so debit it for $ 41,000,000.
- Note Payable is a liability and it has increased the value of the liability, so credit it for $ 41,000,000.
1(b)
Notes Receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
To Prepare: the journal entries on October1, 2018 for notes receivable of Company M.
1(b)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
October 1 | Notes Receivable | 41,000,000 | |
Cash | 41,000,000 | ||
(To record the acceptance of the note receivable) |
(Table 2)
Explanation of Solution
- Cash is an asset and it has decreased the value of the asset, so debit it for $ 41,000,000.
- Note Receivable is an asset and it has increased the value of the asset, so credit it for $ 41,000,000
2(a)
Notes payable
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
To Record: the
2(a)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 31 | Interest Expense (a) | 922,500 | |
Interest Payable (a) | 922,500 | ||
(To record the interest accrued, but not paid) |
(Table 3)
Explanation of Solution
Working Notes:
- Interest Expense is a component of
stockholder’s equity and it has decreased the value of stockholder’s equity, so debit interest expense for $ 922,500. - Interest payable is a liability and it has increased the value of liability, so credit it for $ 922,500.
Notes:
In this case there is an accrual of interest from October to December (3 months).
2(b)
Notes Receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
To Record: the adjustment entries on December 31, 2018 for notes receivable of Company M.
2(b)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 31 | Interest Receivable (b) | 922,500 | |
Interest Revenue (b) | 922,500 | ||
(To record interest earned, but not received) |
(Table 4)
Explanation of Solution
Working Notes:
- Interest Revenue is a component of stockholder’s equity and it increases the stockholder’s equity, so credit interest revenue for $ 922,500.
- Interest receivable is an asset and it decreases the value of the asset, so debit interest receivable for $ 922,500.
Note:
In this case there is an interest accrued from the month of October to December (3 months).
3(a)
Notes payable
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
To Prepare: the journal entries on September 30, 2019 for notes payable of Company PC.
3(a)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 30 | Notes Payable | 41,000,000 | |
Interest Expense (c) | 2,767,500 | ||
Interest Payable (a) | 922,500 | ||
Cash | 44,690,000 | ||
( To record the payment of notes payable and interest) |
(Table 5)
Explanation of Solution
Working Notes:
- Interest Expense for is a component of stockholder’s equity and there is a decrease in the value of stockholder’s equity, so debit interest expense for $ 2,767,500.
- Interest payable is a liability and decreased, so debit it for $ 922,500.
- Note Payable is a liability and decreased, so debit it for $ 41,000,000.
- Cash is an asset and decreased at the time of maturity, so credit it for $ 44,690,000.
3(b)
Notes Receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
To Prepare: the journal entries on September 30, 2019 for notes receivable of Company M.
3(b)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 30 | Cash | 44,690,000 | |
Interest Revenue (d) | 2,767,500 | ||
Interest Receivable (b) | 922,500 | ||
Notes Receivable | 41,000,000 | ||
(To record the collection of notes receivable and interest) |
(Table 6)
Explanation of Solution
Working Notes:
- Interest Revenue for is a component of stockholder’s equity and there is a increase in the value of stockholder’s equity, so credit interest expense for $ 2,767,500.
- Interest receivable is asset and it has increased the value of the asset, so credit it for $ 922,500.
- Note receivable is an asset and it has increased the value of the asset, so credit it for $ 41,000,000.
- Cash is an asset and increased at the time of maturity, so debit it for $ 44,690,000.
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Chapter 8 Solutions
Financial Accounting
- 1. On December 31, 2018, Conchita Martinez Company signed a P1,000,000 noninterest bearing note to Sauk City Bank. The market interest rate at that time is 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Considering these data, the bank released cash to the company amounting to P927,908; i.e., the total of the present value of the principal and interest. Unfortunately, because of lower sales, the company's financial situation worsened. On December 31, 2020, when the carrying amount of the loan is determined to be P951,968, Sauk City Bank determined that it was probable that the company would pay back only P600,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the P1,000,000 loan. The present value of 1 at 12% for 3 years is 0.71178 and the present value of an ordinary annuity of 1 at 12% for 3 years is 2.40183. 1.In the note amortization schedule before impairment, how…arrow_forwardOn April 1, 2025, Sunland Company assigns $504,100 of its accounts receivable to the Third National Bank as collateral for a $314,000 loan due July 1, 2025. The assignment agreement calls for Sunland to continue to collect the receivables. Third National Bank assesses a finance charge of 4% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type). (a) Prepare the April 1, 2025, journal entry for Sunland Company. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.) Date Apr. 1, 2025 Account Titles and Explanation Debit Creditarrow_forwardOn January 1, 20x1, Next Co. obtains a P4,000,000 bank loan due on December 31, 20x4. Interest of 12% is due annually. The bank charges Next Co. an 11.19% nonrefundable loan origination fee. The effective interest rate on the loan is approximately equal to a. 11.19% b. 12% c . 16 % d. 17.37%arrow_forward
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